The Nigerian government is set to introduce a new personal income tax rate of 25% for individuals earning ₦100 million or more each month. This proposal is part of a broader tax reform initiative aimed at making the tax system more fair and efficient.
Taiwo Oyedele, the chairman of the Presidential Fiscal Policy and Tax Reforms Committee, revealed these plans during a breakout session at the ongoing 30th Nigeria Economic Summit in Abuja. He emphasized that the current tax system is inequitable, with about 90% of existing taxpayers being individuals who should not be subjected to taxes.
“Achieving a balance between reducing taxes for those with lower incomes and ensuring that higher earners contribute fairly to government revenues is crucial,” Oyedele said.
He continued, “If you earn ₦100 million a month, we are taking up to 25% from the rich people. That’s because we need to balance the books.”
The proposed tax reforms aim to take effect in January 2025, contingent on approval from the National Assembly. Oyedele stated that his committee is dedicated to ensuring the right people pay taxes. He mentioned that the personal income tax requirements for middle-class earners making ₦1.5 million or less per month would be reduced.
For lower-income individuals, there would be no personal income tax at all. Meanwhile, higher earners would see gradual increases in their tax rates, culminating in the new 25% rate for those making ₦100 million or more monthly.
Oyedele also addressed the need to make business taxes less burdensome. He explained that currently, businesses bear VAT on assets such as factories, laptops, and vehicles. “This increases your cost, and therefore, your pricing will go up. Once our reforms are implemented, you will get 100% credit back on services and assets,” he noted.
The chairman highlighted that a significant portion of the tax burden falls on individuals who should not be paying taxes in the first place. “Almost 90% of people who are paying taxes are those who should not have been paying at all,” he stated. He added that 97% of the informal sector should be exempted from taxes, emphasizing that many individuals in this sector are struggling to survive.
In a bid to ensure accurate tax collection, Oyedele mentioned that his committee plans to use main data identification channels to classify taxpayers correctly. This approach aims to place individuals in the right tax bracket, ensuring fairness in tax collection.
The proposed tax reforms also include a significant reduction in the corporate income tax rate from 30% to 25%. Additionally, Oyedele discussed plans to eliminate or lower VAT on essential items such as food, healthcare, education, housing, and transportation.
These changes are designed to ease the financial burden on lower-income households, which spend a large portion of their income on these vital services. However, Oyedele cautioned that not all industries would benefit from the lower tax rates. To maintain government revenue, VAT may increase on other goods and services.
“The increase in VAT on certain products will help balance our revenue books,” he explained. He also pointed out that inflation has already acted as an “unofficial tax” on the populace, undermining the value of money without any legislative action.
In response to concerns about tax incentives and breaks, Oyedele stated that indiscriminate incentives could harm the economy. He insisted that removing unnecessary incentives would support the business community without adding to government spending.
“We cannot give all the incentives you are asking for. We believe the biggest low-hanging fruit is removing these incentives, and that’s exactly what we are doing,” he said.
These proposed tax reforms have drawn mixed reactions from the public. Some citizens welcome the idea of a fairer tax system that targets the wealthy. Others express concern about how these changes will impact the overall economy and whether the wealthy will comply with the new tax rates.
Business owners are particularly interested in the planned changes to corporate tax rates and VAT. Lower taxes could lead to increased investment and economic growth, benefiting businesses and consumers alike.
However, many are skeptical about the government’s ability to enforce the new tax laws effectively. Previous attempts to reform the tax system have faced significant challenges, including issues related to compliance and enforcement.
As the government prepares to submit the proposed tax law to the National Assembly, Oyedele urges citizens to support the reforms. He believes that a well-structured tax system will lead to a healthier economy for everyone.
